The Federal Government denied allegations yesterday that the Israeli spy agency Mossad had obtained at least 25 false Australian passports over the past year.

Any instances of passport fraud, as had occurred in New Zealand, "would be a matter of very considerable interest to us", said the Attorney-General, Philip Ruddock.

"I'm not saying it can't happen, but I'm saying what we do is build into our system a range of measures to ensure a high degree of integrity associated with Australian documents."

The head of the General Palestinian Delegation to Australia, Ali Kazak, yesterday said he had reliable information that Israeli agents were using the documents "as a cover-up for sabotage and terrorist acts".

"This puts into doubt all holders of Australian and New Zealand passports in the eyes of many countries around the world."

The allegation emerged after the jailing on Thursday of two suspected Mossad agents for six months. Eli Cara, 50, and Urie Zoshe Kelman pleaded guilty in the High Court in Auckland to attempting to falsely obtain a passport in the name of a person with cerebral palsy.

Within hours of the sentencing, 16 headstones in the Jewish section of Wellington's oldest cemetery were overturned in a night-time vandalism rampage. The mayor, Kerry Prendergast, said she had no doubt it was triggered by the sentencing. No other headstones in the 8000-grave cemetery were touched.

The New Zealand Prime Minister, Helen Clark, has savaged the Israeli Government, not only for "an unacceptable breach of New Zealand sovereignty" but for failing to apologise.

The Australian Federal Police Commissioner, Mick Keelty, would not say what police knew, other than that he was aware one of the men spent time in Australia.

A spokesman for Mr Ruddock said continuing investigation into the Israelis' activities here was a matter for ASIO, not the Australian Federal Police.

A federal police spokeswoman said they had had no request from the New Zealand police to track down two missing associates of Kelman and Cara.

Cara, who has five children, spent time in Australia. A house he used in Turramurra was raided before his arrest in Auckland.

His lawyer, Stuart Grieve, QC, said Cara left school in 1972 and joined the Israeli Air Force as part of compulsory service, becoming a pilot. He left in 1995, gained two degrees and worked for an eco-tourism company, Eastward Bound. In 2001 he came to Sydney with his wife and children, where he established an Eastward Bound branch.

"Despite assertions in the media to the contrary, Mr Cara operated a bona fide business as a tour operator from his Sydney home," Mr Grieve said.

Cara made 24 trips to New Zealand between October 2000 and March 23 this year, when he was arrested in Auckland.

There are no listings in the telephone directory or in company records of any such business name in Australia. But Eastward Bound lists KEA Campervans - which has offices in Australia and New Zealand - as a partner.

An Auckland-based director of KEA, Ronald Fuhrmann, said the company would not comment about its connection with Cara.

A Sydney-based director of KEA, Michael Horn, confirmed he knew Cara when he was working for Eastward Bound in Israel.